Corrections Performance Contracting 101

Corrections Performance Contracting 101

By Rob Risley
(09/17/2008)

When it comes to infrastructure improvements, correctional facilities have long faced unique construction challenges that stem from budgetary pressures, security restrictions, and specific policies relating to energy conservation measures and protocols for construction personnel. As state and local agencies look for efficient and cost-effective ways to carry out critical upgrades in their prisons and detention centers, they are increasingly turning to energy performance contracting.

Performance contracting is not a new concept, but today it is being given a new level of attention as energy costs rise and government budgets shrink. The fact is, energy performance contracts offer financial and operational benefits. When an agency or department enters into an agreement with a private energy services company (ESCO), the ESCO will develop a package of proposed improvements — from lighting and HVAC upgrades to water conservation projects and installations of anti-tampering devices — that can be paid for entirely through the anticipated savings. By guaranteeing that savings will meet or exceed annual payments to cover all project costs, the ESCO provides a secure financing structure that allows agencies to plan and budget with confidence.

The Basics

Once a facility and its governing budgetary authority decide to pursue infrastructure improvements via an energy performance contract, the work of choosing the right ESCO begins. In assembling an RFQ, and thereafter throughout the selection process, it is critical to match the needs of the facility with the right energy services partner.

Riley

Before selecting an ESCO, administrators should review facility infrastructure needs along with the track records and offerings of potential ESCOs.

Some key considerations include:

Project Management: Some ESCOs offer turnkey management, streamlining the construction process. By having one project management leader overseeing multiple energy improvement projects, the facility can more easily ensure that construction personnel are properly screened, that security issues around inmate areas are handled efficiently, and that there is coordination and accountability across multiple projects.

Financing: In many cases, an ESCO can assist owners in surveying and understanding available financing mechanisms to help structure project financing. Many government agencies opt for tax-exempt financing with an annually renewable lease-purchase agreement.

Maintenance and Repair: As part of the performance contract, maintenance and repair issues should be addressed. In order to meet energy savings goals, the maintenance of new energy efficient equipment is essential, and most ESCOs provide ongoing services.

Right Technology, Right Application: Because technical requirements vary by facility type, age, existing technologies, regional environmental conditions, and local codes and ordinances, the choice of applicable products may be critical to successful operations and realized savings. The most successful ESCOs offer independent, neutral assessment of available industry products to meet particular facility needs.

A Stake in the Game: Savings guarantees are a key value to this process and to the success of a program. Choosing an ESCO that demonstrates a mutually beneficial outcome can be critical to success through a long-term relationship.

Industry Recognition: There are few more telling indicators than broad scale recognition from business and industry partners. Demonstrated leadership in conservation and sustainability as well as sound business and financial practices are as important as technical expertise.

Energy Audit

When a facility selects an ESCO, the process of developing the terms of the energy performance contract will typically begin with a thorough energy audit to identify and evaluate energy-saving opportunities in every area of operation. The ESCO will use the audit to provide a detailed review of the suggested improvements and the associated savings and offer a comprehensive proposal of energy-related upgrades that can be funded through cost-savings. Facility managers and those involved in the capital improvements process should carefully review the energy audit, which together with the proposal serve as the foundation of the contract.

Energy efficiency and water conservation upgrades focus on several key operational areas, including heating, cooling, ventilation and distribution, system controls, lighting, and water flow. Major improvements in these areas can lead to significant annual savings on energy costs, and the total cost of the improvements can generally be paid off during the course of a seven to 10 year contract.

Heating improvements include the replacement of aging boilers, steam traps and pumps. Cooling upgrades include the replacement of aging chillers, cooling towers or pumps. In the area of ventilation, variable speed fans can be installed or replaced, leading to overall savings on energy bills with costs easily offset through the performance contract. Better system controls also result in significant savings, and on the lighting front, replacing fixtures and redesigning lighting systems will also have a significant cost impact.

Once facility managers and the ESCO agree on the scope and details of the performance contract, the agreement will serve as the guiding document throughout the course of the construction work and through the term of the guarantee provided by the ESCO.

A Case in Point

Corrections officials and local governments throughout the United States have taken advantage of the clear benefits offered by energy performance contracting. In 2005, the Florida Department of Corrections embarked on an ambitious plan to upgrade electrical, heating, air conditioning and water systems at seven distinct locations throughout the state. The DOC entered into a performance contract with FPL Energy Services, a Florida-based ESCO that has provided energy efficiency solutions to government agencies and companies for more than a decade.

FPLES performed a comprehensive energy audit and worked with the DOC to determine the scope of the project. After agreeing upon the energy efficiency measures to be taken, and the method for oversight and construction, FPLES and the DOC set the project installation cost at approximately $7.5 million, with a guaranteed annual savings for the first year of $880,247. After the first year, actual savings exceeded the guaranteed amount, reaching a total of $890,247.

Energy upgrade components included the installation of water control systems and low-flow water conservation mechanisms to support flow reduction and security enhancement. Because water systems in corrections facilities are often subject to abuse, with contraband items blocking drains and faucets damaged by misuse, creating a reinforced and secure water flow was vital to generating water usage and cost savings and yielding benefits in terms of reduced inmate vandalism and contraband disposal.

In addition, boiler systems were replaced at several locations. Kitchen and laundry systems were upgraded from steam to gas, and cooking and cleaning systems were replaced. Water heating systems were upgraded, and chiller and direct expansion HVAC systems were improved. High efficiency lighting with specific load control measures was also installed.

Taking 11 months, the project was completed under budget and one month ahead of schedule. The oversight mechanism for the project was unique, and can serve as a model for other facilities and departments embarking on improvements. FPLES worked with two oversight agencies and was able to coordinate efforts between Florida’s Department of Financial Services and the Department of Management Services.

With the program deemed a success, the DOC has since implemented a second project round at 12 facilities, encompassing an additional 2 million square feet. Due for completion in 2009, this phase will generate a minimum of $1.4 million per year in savings. A third phase is currently under development.

Undertaking major infrastructure improvements by means of performance contracts, the DOC was able to realize vital upgrades coordinated among several different facilities with no up-front or out-of-pocket capital investment.

Conserving Energy

In Gainesville, Fla., Alachua County officials turned to FPLES to conserve water and natural gas at the county jail, which houses more than 900 inmates. Seeking to control costs and improve operations, the county determined that water usage and water heating were the key areas of concern.

An analysis showed that the county jail used more than 36 million gallons of water per year at a cost of more than $230,000, with an additional $240,000 on spent natural gas heat. After review, FPLES determined the county could reduce annual water usage at the jail by more than 16 million gallons.

A major new addition was planned at the jail, and the local utility company determined that an upgrade on the facility’s sewer lift station costing an estimated $300,000 would be required unless water usage was reduced. However, FPLES estimated the county could save a significant amount of money on one-time and recurring costs.

New system controls and valves equipped with electronic controls and an automatic timer shut-off component will be installed to conserve water and energy. Because inmate tampering is an area of concern, new secure on/off control buttons on each lavatory and shower device will also be installed to make lavatories and showers more resistant to inmate vandalism.

Proposed energy and water system upgrades will make the lift station unnecessary and save an additional estimated $109,000 on annual utility bills.

The Future

Through the application of renewable technologies and public-private partnerships, opportunities exist to meet public demands for greener facilities and legislative mandates for reduced carbon footprints, while enhancing building performance and financial efficiency.

As government agencies throughout the United States move to implement sustainable initiatives, energy performance contracting will only grow in importance.

By offering a coordinated approach to energy efficiency upgrades and water conservation measures based on experience and expertise, ESCOs offer correctional facilities the promise of capital/plant upgrades, operational efficiency and future cost savings, with little or no investment up front.

With the right approach, what is good for the environment can also be good for the bottom line.

Rob Risley is southeast regional manager for FPL Energy Services. He has more than 20 years of experience in performance contracting and central energy plant project implementation.